Apollo tops rival bid for EasyJet with £5.7b takeover offer
US equity giant beats Castlelake's proposal as bidding war begins for the British airline
London: British no-frills airline EasyJet said Friday it had accepted a £5.7-billion ($7.7-billion) takeover offer from US private equity firm Apollo, topping a rival bid by American investor Castlelake.
The new offer signalled the start of a bidding war for the carrier that flies mainly across Europe.
EasyJet said in a statement that it had reached an "agreement in principle" with Apollo after its surprise offer of £7.15 per share beat Castlelake's bid of £6.90 per share.
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The proposal delivers a "superior outcome" for shareholders and as such, "the EasyJet board is no longer minded to recommend the Castlelake proposal", the airline added.
Before Apollo swooped in, EasyJet looked set to be taken private by Castlelake, which manages around $38 billion in assets, after the carrier accepted its beefed-up fifth bid on Sunday.
"A bidding war is on," said Neil Wilson, investor strategist at Saxo UK.
"Prime take-off and landing slots, growth in higher margin holidays and an order book of shiny new Airbus aircraft make it very appealing," he said, adding that EasyJet "should go for more" than the offer.
Susannah Streeter, chief investment strategist at Wealth Club, noted that EasyJet's fast-growing holidays business was likely a key attraction for the US fund.
"Package holidays generate higher margins and more predictable revenues than airline tickets alone, and Apollo is likely to believe there's plenty more value to unlock by expanding the business," she added.
EasyJet's share price surged 14.5 percent to £6.73 in early London trading Friday, but still below both offer prices.
Airline investors
Apollo, which manages more than $1 trillion in assets worldwide, is no newcomer to the aviation sector, having already invested in Aeromexico, Sun Country Airlines and Atlas Air, and provided financing to Air France-KLM and Virgin Atlantic.
According to the Financial Times, Castlelake is a major player in aircraft leasing, with a fleet of 375 planes rented out to airlines including Etihad, Qantas, Air India Express, Frontier and Viva.
Apollo has until August 7 to make a firm offer or walk away under UK regulations, while Castlelake has until August 3.
As foreign entities, neither Apollo nor Castlelake can take full ownership of the airline outright owing to UK and European rules requiring firms to be majority owned and controlled by regional nationals.
Under Castlelake's proposal, 51 percent of the carrier would be owned by European Union nationals including two airline industry veterans, Peter Bellew and Mark Breen.
Apollo confirmed it would take necessary steps to find a European partner but did not provide further details.
In a statement, Apollo described EasyJet as "one of the most attractive businesses in the global aviation sector and a highly differentiated franchise with significant long-term growth potential".
In May, EasyJet reported that its losses had deepened by 27 percent in the first half of the financial year to £377 million, as the US-Iran conflict sent fuel prices soaring and upended travel plans.
The company warned that the second half of the year would also be affected, though chief executive Kenton Jarvis said the airline was "well placed" to ride out the turbulence.
